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Monday, January 29, 2007

Do we need better global economic institutions?

Of course we do. Ngaire Woods from University College, Oxford, tells us how in her new report for UK centre-left think tank the Institute for Public Policy Research: Power Shift Do we need better global economic institutions? She argues that "the WTO, the IMF, and the World Bank each need to be reformed". Woods sees "three innovating forces" that "are pushing towards a reshaping of international institutions":

The first change is the rewriting of rules by new powers claiming a place on the international scene. Individually, countries such as China, Russia, India, Brazil, Argentina and Venezuela have begun to change the rules governing exchange rates, energy, trade, and sovereign debt rescheduling. The ‘G20’ coalition of developing countries has taken a strong stance on trade. Equally powerfully, emerging markets have voted with their feet – walking away from borrowing from the IMF and World Bank. And they have benefited from it, for instance, when China ignored IMF prescriptions, Malaysia refused IMF assistance, and India postponed capital account liberalisation – in each case actions that helped these countries weather the Asian financial crisis. (emphasis added)

...A second driver of change is the transformation of global regulation. The old model was state-centred. Governments regulated within their borders with some cross-cutting commitments to other governments entrenched in treaties. In the 1970s the debate about regulating multinational corporations was all about inter-state rules – treaties on the economic rights and duties of states and a bolstering of the law to enable developing country governments to regulate.

The new model harnesses communications technology, nongovernmental organisations, and consumers. It opens up and redefines the interests of some companies to include labour and environmental standards. It uses multiple sources of information – as we are seeing in global health surveillance. It is carefully tailored to the needs of the private sector, as we are seeing in codes of conduct in capital markets.

The new regulation is not enforced by formal sanctions. Rather, it relies on bloggers, newspapers, transnational advocacy groups, third-party monitors, and pressures on companies from shareholders, auditors, insurers, and clients. This opens up exciting new possibilities for monitoring and pooling information from a variety of sources. As a system of regulation, however, this is undoubtedly the Americanisation of global regulation. It is more individualised, more legalistic, more reliant on after-the-fact exposure and class action suits, more market based, and more insurance-reliant.

...Networks present a third source of innovation in global governance. It has become popular to describe global politics in terms of networks of regulators, firms, lawyers, accountants, and judges. Experts in each of these areas are increasingly connected. As they work together, learn from one another, and emulate each other, this leads to a global convergence in norms and rules. But networks are highly political. Like the gentlemens’ clubs of global politics, they serve to cement common interests and forge informal agreements – principally among the powerful. In the global economy, the G7, the Group of Seven Finance Ministers, is a prime example. The group comprises seven large industrialised countries. It has no formal authority or rules of operation. But since the late 1970s it has served as a network within which the US, Britain, France, Germany, Italy, Japan, and Canada can coordinate their policies. Quietly and discreetly, the G7 has long been at the helm of the International Monetary Fund.

The benefits of networks are clear for the powerful. They offer a way to coordinate, quietly and informally. For less powerful states and peoples the benefits of attending networks of the powerful are not obvious. Smaller, poorer states who are invited to attend a G7 dinner are like guests in a gentlemen’s club. Unlike their attendance at an IMF meeting, they attend a G7 meeting with gratitude, not with any of the formal rights they have in international institutions such as to vote or collectively to veto.

Rather than from joining networks of the powerful, developing countries stand to gain most from forming their own networks, exclusive of the powerful, and using them to identify and elaborate shared problems before such expression is pre-empted by louder and more powerful voices. Such networks of less powerful states could play a key role in making international institutions stronger and more responsive in aggregating and responding to the concerns of all countries affected by globalisation.

Comments

Probably, we need institutions that work better. But NGO networks? Bloggers? Oh come on... can anyone seriously believe that these will shape a new global governance framework?

Blogs like the New Economist enrich the understanding of some fraction of a percent of the elites that contribute to this global dialog. That's wonderful. But where sovereigns are concerned, knowledge is NOT power enough: nor is insight nor civility. Never was, never will be. Sovereigns cooperate with each other, or not, and coerce everyone else -- including bloggers -- or they're not soverign. They're not about to disappear.

Nor should they. The failures of government must be corrected, not by-passed. The governance of Zimbabwe, Solomon Islands (or Fiji), Sudan, Iraq, Sierra Leone cannot be ameliorated by consumer choice and information technology.

Spend a few days in Dacca surrounded by networks of beggars, networks of police, networks of business and government cronyists and you'll be quickly disabused of the idea that order emerges from reciprocity and cooperation among individuals.

The eccentricity of Malaysia's former Prime Minister proves nothing -- the Malaysian economy prospered despite him. But not every economy is so lucky. To be effective, the successors to the IMF or WTO must be something very like the IMF or WTO: that is, intergovernmental.

Global poverty, corruption and systematic human rights abuse are seperate issues. Undeniably all are linked into the struggle for human rights as universally tangible as they are declared. Sadly the arcbishop and high commissioner have lumped them together and declared the erradication of them all to be a matter of investment and hard work. This is complete nonsense but convieniently fitting with the philosophies of a hamstrung international body and a timid, apolegetic church.

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